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£1,000 tax-free trading allowance

Question: You do a little bit of buying and selling on ebay (or other sundry sales/income earned) and make a few hundred pounds per year profit on this. Do I need to declare this on my tax return?

I’m often asked this question by clients – although most of them hope dearly to make more than a few hundred pounds with their writing! – but in some cases it doesn’t go that way. HMRC recently brought in a new allowance to cover these sundry sales. There’s more detail on the HMRC website, and I’ve also excerpted a good summary below from JF Financial, an online accountancy practice. One important thing I’d ask you to bear in mind – this allowance applies to your PROCEEDS, not the profit you make.

£1,000 tax-free trading allowance

Provided the income from your hobby trading doesn’t exceed £1,000 in the tax year, you won’t pay any tax on your profit – however if you are already registered for self-assessment you will still need to include the income on your tax return.

So, if your eBay trading started before this, you will only be able to take advantage of the new allowance from 6th April 2017. For the tax year ended 5th April 2017, you will be taxed in the normal way. Let’s assume this was not the case and concentrate on the rules for 2017-18 tax year.

The £1,000 applies to your income, not your profit. So, add up the total value of your sales during the year (before any fees and charges are taken off). If this figure is less than £1,000, you will not pay any tax on your profit.

On your tax return, select the self employment pages, enter the total value of your sales as your income and then enter the same amount in the expenses section as “trading allowance”.

Should your sales exceed £1,000, you can either deduct your actual expenses (e.g. the cost of the items you bought for resale) or deduct the £1,000 allowance.

You don’t set a precedent if you decide to deduct the allowance this tax year – the next year you can choose to deduct your actual costs instead, if that gives a better result.

If you weren’t already registered for self assessment you would not have to declare your eBay trading income at all, unless your sales exceeded £1,000.

In this case, you would simply add up the value of your sales income each year, to check that it was below £1,000. Only if it exceeded this, would you need to register for self-assessment and complete a tax return (following the same rules as above). Otherwise, you would just need to keep a record of your trading income.

Of course, HMRC like to include a few quirks to catch people out, so you should be aware of the pitfalls.

Check with your accountant or directly with the HMRC Helpline 0300 200 3300.